Natural Gas Prices Forecast: Two-Day Rally Fueled by Cooler Weather

Highlights

• U.S. natural gas sees a two-day rally as optimism sweeps the market, bolstering prices.
• Cooler weather forecasts spur short-sellers to cover, with speculative buyers defending key lows.
• NatGasWeather predicts a surge in demand due to incoming subfreezing temps across the U.S.
• IEA notes an “unprecedented surge” in LNG projects, altering the natural gas market balance.

Natural Gas Rally Continues Amid Cooler Forecasts and Speculative Buying

U.S. natural gas traders are riding a wave of optimism, pushing prices higher in a two-day rally. While cooler temperatures have spurred short-sellers to cover positions, speculative buyers are defending key bottoms at $2.820 and $2.796. The price momentum is drawing attention to the complex interplay of supply and demand factors that will influence the market in the near term.

Weather Patterns Affecting Demand

Weather forecasting service NatGasWeather predicts a surge in national demand as subfreezing temperatures roll through the northern and central U.S. late this weekend. Although demand is expected to remain light until then, conditions are set to change dramatically, prompting traders to reassess their positions. According to NatGasWeather, colder temperatures in the Rockies and Northern Plains will subsequently spread across the Midwest, elevating demand.

LNG Market Outlook

The International Energy Agency (IEA) has reported an “unprecedented surge” in liquefied natural gas (LNG) projects, which could alter the market balance by mid-decade. While this rise in production capacity could ease price pressures, it also raises the specter of a supply glut. Major European buyers, including Eni, TotalEnergies, and Shell, are entering long-term LNG supply deals, reflecting confidence in the market. However, the IEA cautions that mature markets, particularly in Europe, could face structural decline.

Volatility and Market Dynamics

Market volatility has been in a steady decline, reaching 49.1%, the lowest since April 2022. Although U.S. natural gas futures saw a modest 2% increase on Tuesday, the spot market in the Permian Basin experienced a significant drop due to a reduction in flows on Kinder Morgan’s Permian Highway gas pipe. Meanwhile, next-day prices at the Henry Hub benchmark gained about 2% to around $2.65 per mmBtu, providing a mixed view of market dynamics.

Short-Term Forecast

Given the impending weather conditions and the speculative buying that is currently supporting prices, the short-term outlook for U.S. natural gas appears cautiously bullish. Traders should watch closely for updates on weather patterns and LNG production capacity to navigate the market effectively.

The trend is down and historically, weather-related short-covering rallies tend to end quickly. Therefore, we don’t expect this current rally to change the trend to up over the near-term.

Technical Analysis

The current daily price of Natural Gas stands at 2.978, hovering above both the 200-day and 50-day moving averages at 2.596 and 2.826, respectively, signaling a bullish stance.

While the asset is trading above the main support level of 2.838, it is also approaching minor resistance at 3.002 and main resistance at 3.184.

In this context, traders should eye the minor resistance level as a near-term hurdle.

If the asset manages to break above it, a push toward the main resistance is likely.

Overall, current market sentiment will be cautiously bullish as long as the 50-day moving average holds as support.